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  • Dusan Mijailovic

Court case scheduled regarding Shell's board and climate plan

On 9 February, ClientEarth revealed that they have instigated legal action against 11 Shell directors at England's High Court. The lawsuit is to pressure Shell to form a more vigorous and consistent plan to reduce emissions.

ClientEarth is making the accusation that Shell is going against the UK Companies Act. This legislation requires publically-traded companies to properly address any risks that the organisation might be confronted with, which ClientEarth claims include physical, transition, and reputational climate-related threats that are "material and foreseeable" for Shell.

ClientEarth declared in a statement that in order to maintain a competitive place in the energy markets of the future, as global nations and customers opt for more cost-efficient, cleaner energy, Shell needs to transition from fossil fuels to an alternative business model.

The Board of Shell's strategy for transitioning is not justifiable, according to the arguments presented.

ClientEarth is adhering to the precedent set by other environmental organizations in claiming that Shell's strategies for diminishing emissions do not follow the Paris Agreement. This may leave the company susceptible to the potential hazards of a continually warming climate or the danger of its assets being left behind as policy and investors progress more quickly than Shell.

ClientEarth has a small stake in Shell, yet it has received backing from a number of the Anglo-Dutch energy firm's other shareholders for its initiative. This includes pension funds London CIV, Nest, Danica Pension, AP Pension, and AP3; along with asset managers Sanso IS, Danske Bank Asset Management, and Degroof Petercam. Collectively, these institutional investors who are in favor of ClientEarth's endeavors have a combined ownership of over 10 million Shell shares.

Jacqueline Amy Jackson, the head of responsible investment for London CIV, expressed that they did not consider the board of Shell to have a satisfactory strategy to take on climate risks. According to her, the board of a firm with a high-emission rate holds a fiduciary duty to manage the climate risk.

Mark Fawcett, Chief Investment Officer of Nest, pointed out that 2023 is a critical year if we want to remain on our path to net-zero by 2050 and this can be a launching pad for Shell to introduce key elements.

Shell has refuted the claims made by ClientEarth and its shareholders and declared that they "do not accept" them.

The spokesperson declared that their directors have been meeting their legal responsibilities and acting in the company's best interests. They also asserted that their climate objectives are in accordance with the Paris agreement's [1.5C] aim. Furthermore, their shareholders expressed their approval with the energy transition strategy by voting 80% in favour at the last Annual General Meeting. See our climate target for more information.

Questions arise: What has been experienced up until now and what will occur in the future?

Shell has been brought to court multiple times due to its involvement in the climate and the promises it has made.

In May 2022, the Hague District Court delivered its ruling that the reduction of the carbon intensity of Shell's products by 20% by 2030 does not meet the UK's or EU's net-zero goal for 2050 as it could potentially lead to an increase in production.

Shell maintained that its absolute emissions from 2018 will not be exceeded and it believes its 2050 net-zero goal covering all scopes is reliable.

The Court, however, ruled in favor of Greenpeace and Friends of the Earth, requiring Shell to establish a goal to reduce their total emissions by 45% by 2030 compared to their output in 2019. Shell has lodged an appeal against the court ruling and, at this time, has yet to establish this type of target.

ClientEarth maintains that this is the first occasion when the directors of an energy firm have been brought to court due to a climate group. If the High Court allows ClientEarth to pursue their claim, it could set the stage for other similar cases to follow.

In recent weeks, Shell, BP, and Equinor have come under intense criticism for the release of their record earnings during the current cost-of-living crisis. Controversy has arisen due to the notion that these profits were not generated from any kind of innovation, but rather from the rapid gas price surge attributed to the conflict in Ukraine.

Shell's annual profits rose to a record-breaking $40bn worldwide - an increase of more than 100% compared to the year prior. UK critics are pressuring the Government to raise the windfall tax on Shell and other companies alike, as well as to reduce the tax-free allowances for such energy corporations. In response, Shell stated that only a small fraction of their profits (less than 5%) was generated through UK activity.


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